Perception and role of informal rural finance in developing countries: the example of Tanzania

Negative perceptions on the value of informal rural finance or credit which are prevalent in a number of developing countries are compounded in the case of Tanzania because of the country's Ujamaa and socialist policies. Consequently, informal rural finance has been neglected both in terms of research and policy planning. This paper attempts to fill part of the research gap on informal rural finance in Tanzania, and to contribute to the growing body of knowledge on this subject in the developing countries. The paper briefly investigates the policy and perception scenario on informal rural finance in Tanzania in the last two decades. Based on empirical data collected through village surveys in three regions of the country, the paper describes the sources of informal credit for smallholder farmers in those areas, and assesses the use, repayment, terms and conditions of such credit.